Fears of contagion from the Turkish lira meltdown has sparked a rout on European markets as president Recep Tayyip Erdogan refuses to bow to investor pressure.
As the lira plunged as much as 18pc against the dollar to record lows, fears mounted over the exposure European banks have to Turkey’s huge burden of dollar-denominated debt.
Despite pressure from markets and Donald Trump doubling tariffs on Turkish steel and aluminium imports, president Erdogan was defiant. He vowed to take on the “economic hitmen” and “interest rates lobbyists” urging him to change course.
Mr Erdogan urged his followers to convert their dollars and gold into lira to rescue the currency sliding to new all-time lows. On interest rates, he added: "You won't be able to make money on the back of this nation. You won't make this nation kneel."
The EuroStoxx Banks index, which tracks the European sector, plummeted 3.2pc to its lowest level since 2016 on fears of exposure to the crisis next door. Bank of International Settlements data indicated that Spanish and French banks were most vulnerable to Turkish borrowers.
Shares in BBVA and Unicredit, banks exposed to the debt, plunged over 5pc in intraday trade as the sector suffered heavy losses while the lira sell-off spread into other emerging markets currencies, such as the South African rand and Argentine peso.
The lira's freefall has accelerated in recent days amid a row between Turkey and the US over the detention of an American Christian pastor.
Investors have been spooked by the Turkish leader tightening his grip on the country's monetary policy in 2018. Mr Erdogan has the unconventional view that lowering interests rates will combat the country's rampant inflation and called rates the "mother of all evil".
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